El Paso fire and police pension fund audit sparks reform ideas

City Rep. Courtney Niland, right, talks with Tyler Grossman, chairman of the board for the El Paso Firefighters and Police Pension Fund during Tuesday's city council meeting at the El Paso Public Library downtown branch. At left is city Rep. Steve Ortega. Rudy Gutierrez/El Paso Times

The city's audit of the El Paso Firemen and Policemen's Pension Fund is done and is already sparking several different interpretations on how to go forward with negotiations to solve the fund's $270 million shortfall.

Elected officials aren't in agreement yet while the fund's board is still sticking by its original plan to increase contribution rates from its members and the city.

"I think it gave us some more information, but it didn't give us a clear definitive direction on how to solve this problem," city Rep. Steve Ortega said.

The fund is currently in a $270 million shortfall after the city poured in $210 million four years ago. Police and firemen also increased their contribution rates, while newly hired police and firefighters increased their retirement age from 45 to 50 and surrendered annual cost-of-living adjustments in retirement.

Reporter Evan Mohl

The audit only reviewed financial investments and not best practices, which have come under scrutiny in recent weeks after reports from the El Paso Times.

The audit made it clear that most of the fund's troubles come from extensive losses from a bad global economy the past four years. The investment losses are comparable to what most other pension funds experienced, the audit reports.

The city funds about 60 percent of the $1.1 billion pension while the rest comes from police and firefighters' contributions.

The audit stressed that the combined rate of contributions are not sufficient to cover the member benefits and the interest the fund must pay on liabilities -- unfunded benefits which the pension cannot pay at this point.

Advertisement

It's why the pension fund board has asked the city to pay $4 million more annually while firefighters and policemen contribute $3 million more annually.

"I think the audit pretty much said what we all knew and was consistent with what our audit said," said Lt. Tyler Grossman, chair of the pension fund board.

The audit also extensively studied the cost-of-living adjustment, which appears will become a major negotiation issue.

Every police and firefighter hired before 2007 receives a 3 percent cost-of-living increase each year. The adjustments come at age 60 or two years after retirement for police officers and five after for firefighters -- a possible reason the fire pension portion is in better condition than the police.

The cost-of-living increases account for more than 15 percent of the fund's payroll, not including current retirees. On the police side, it accounts for $177 million of the liability -- or benefits to be paid out.

"The 3 percent COLA (cost of living adjustment) is a very valuable and thus very costly benefit," the audit states.

The audit showed a study of reducing the cost-of-living adjustment to 2 percent would alone take the police pension from infinitely underfunded to being funded in 54 years.

Some city leaders believe the cost-of-living adjustment should be negotiable.

"Cost-of-living increases are almost unheard of in this economic time," city Rep. Cortney Niland said. "They're not sustainable. If your fund is not doing well, you don't get a bonus."

The cost-of-living adjustment is supposed to protect purchasing power against inflation. But many other retirement organizations, like Social Security, have moved to other metrics like the consumer price index, which measures the average costs of goods and services.

The consumer price index increases have for the past several years been below 2 percent and, in some cases, not changed.

State law, however, protects the cost-of-living increase.

"It's not something we can change, so it's sort of a red herring," Mayor John Cook said. "It's something we've promised them, so I think the answer is contribution rates."

The El Paso Firemen and Policemen's pension fund is on the agenda for Tuesday's City Council Meeting.

"I think the real thing I took away is that we shouldn't be forced into action now," City Manager Joyce Wilson said. "The fund has solvency, so it's not an imminent crisis. We need to take our time and figure out what the problem really is so we're not in this position in five years."

Evan Mohl may be reached at emohl@elpasotimes.com; 546-6381.

Audit highlights

The firefighter's portion of the pension is in much better condition than the police's. Firefighters contribute about 1.5 percent more per paycheck than the police and also wait longer for cost of living increases if they retire before 60.

A 2.5 percent increase in contribution to the police fund would result in a funding status comparable to the firefighter's portion of the pension fund.